Quantum crash, Jensen's CES mic drop sends quantum stocks into a tailspin

• Jensen pulls the rug out from under the Quantum Stocks!

• The broader market continues to struggle.

• Bond Yields continue to push higher.

• Oil down, Gold up. Vix remains in ‘nervous territory’.

• Try the Grilled Rib-Eye with Arugula and Grana Padano.

It was an UGLY day – for Quantum Stocks! NVDA CEO Jensen coming out swinging – telling the world at the CES event in Vegas that all this excitement recently around quantum computing is misplaced. That technology is at least 15 yrs to 30 yrs away! And since Jensen is considered somewhat of a ‘God’ in the tech world, some investors ran for the door….and quantum stocks got absolutely crushed….

Now, let’s just consider a couple of things…on Tuesday NVDA posts job openings for a ‘Quantum Computing Director and related positions’ and then on Wednesday he slams the very idea and handicaps all of the existing players in the space and the potential new players in the space. And the bottom fell out…. QTUM ETF lost 4.6%, but the damage was much clearer in the individual names…. IONQ – 39%, RGTI – 45%, QUBT – 43%, QBTS – 36%.

To be clear – these stocks are in the small cap/mid cap space – so they tend to be more volatile, and moves can be exaggerated as a result. Additionally, the space has been HOT, these stocks have made monster moves (550%, 1300%, 1400% etc.), so yesterday’s reaction is not that much of a surprise, as many of the investors, traders that are in them have large gains, so why not hit the sell button on a headline like that, that you know is going to send shockwaves thru the sector?

Again, this isn’t rocket science – it’s just risk management. But remember – for every seller there was a buyer – so it’s not like there aren’t people out there that don’t agree with Jensen, clearly there are, otherwise they wouldn’t put money to work in the sector, which doesn’t mean they are right, it just means they believe in the technology….. Now, let’s see where this goes from here.

What I want to see is the CEOs at these companies come out and call Jensen out. If they don’t, then it would suggest that maybe he is correct, that they can’t argue with him….so let’s see who stands up….so far QBTS CEO Alan Bartz has done just that…Where are the others?

Ok – back to the broader market – which continues to struggle as bond yields continue to push higher….Yesterday morning at 6 am – futures were suggesting a bounce but then at about 7:45 am – the 10 yr bond yield pierce 4.7% - trading up to 4.728% and that sent futures plunging and when stocks opened, the weakness continued….all the indexes plunging further into negative territory…but as the day progressed the tone changed just a bit. The $22 billion auction of 30 yr bonds was successful, 30 yr yields did not surge beyond their current level – 4.913% and that was well received and that seemed to settle markets…and by the end of the day it was ‘OK’ – other than those quantum names!

The Dow gained 106 pts, the S&P added 10 pts, the Nasdaq lost 10 pts, the Russell gave back 10 pts, the Transports added 34 pts, while the Equal Weight S&P added 11 pts. The Bloomberg Total Return Mag 7 Index (BM7T) lost 52 pts or 0.2%.

Yesterday – FED Gov Chrissy Waller gave a speech in Paris at the Organization of Economic Cooperation and Development (OECD). He focused on the U.S. economic outlook and monetary policy. In summary – he supports more cuts (not a surprise), he acknowledged that inflation remains an issue but expects it to decline (again not a surprise), he does not see tariffs as an issue, the economy and labor market are strong, in fact he does NOT see a dramatic weakening at all (so then why the cuts?), and he suggested that the committee is mixed on the number of future cuts – ranging from zero to 5! I’d like to know who supports 5 rate cuts in 2025, it’s ridiculous….my money says it’s San Fran’s Mary Daly!

Today we are going to hear from Philly Fed President Patty Harker (who calls himself an ‘eagle’ which means he won’t commit), Richmond Fed President Tommy Barkin (on the fence), Kansas City Fed President Jeff Schmid (moderately hawkish) and Fed Governor Mishy Bowman (leans hawkish). So, there will be a lot to consider tomorrow when the markets re-open. Remember – stock markets are closed tomorrow in observance of President Carter’s Funeral which begins at 9:30 am.

Eco data yesterday showed weakness in ADP employment…. we were expecting 140k new jobs and only got 122k – does that suggest anything about tomorrow’s NFP report? In addition, the FOMC mins revealed nothing really new. Cautious approach going forward, likely no cut in January, a bit of economic uncertainty surrounding tariffs, tax cuts and immigration policy. In the end, the minutes told us what we already knew - a shift toward a more cautious monetary policy stance, due to ongoing concerns about persistent inflation and economic uncertainties associated with the incoming administration.

But the excitement will be tomorrow’s NFP report…. we expect 165k new jobs, we expect Unemployment to remain at 4.2%, Avg Hourly earnings m/m +0.3% and y/y of +4%. We will also get the U of Mich sentiment surveys…. Not expected to reveal much.

Oil fell by 1.25% yesterday to end the day at $73.33 on large inventory builds in the US….this vs. last weeks’ data that showed inventory declines….Whatever…..you can’t get to granular and look at weekly because one week its up and then the next its down….…you have to look at the bigger picture… and you have to consider global demand in the long term which I think is strong…..Now that doesn’t mean it won’t go lower – especially if Trump opens the spigots, and lower may not be a bad thing as it will help to lower inflation. For now- we are above all 3 trendlines – leaving us in the $72.60/$76 trading range. This morning oil was up 20 cts at $73.44.

Gold rallied by $25 yesterday to just kiss $2675 – a level I identified as the upper range in yesterday’s note. The move is credited to the bet that the FED is on the path of lowering rates later this year.

The markets are now pricing in one rate cut in 2025, with a 60% chance of a second – while at the same time – there is a 25% chance of a rate HIKE. Oh boy! Unless the data turns decidedly negative, I’m not sure that the FED needs to stimulate the economy any more than they are now (I recognize that they don’t think they are stimulating, that they think rates remain restrictive) …but let’s see.

We are now teasing trendline resistance – a push up and thru will put $2750 in the bull’s eye. A failure will see gold trade back to $2625 ish level.

US Futures are negative, but there is no trading today…. Dow futures down 35 pts, S&P’s down 11 pts, Nasdaq is down 60, while Russell is down 1 pt.

I still think that the first quarter will continue to be volatile as investors, traders and algo’s digest all the crosscurrents that plague the markets…. Earnings start next week so the focus will be on what the C-suite thinks about the future. Much of the action will be driven by what we hear for the next 4 weeks…. Bullish forward guidance will help support prices…. any sense of weakness and stocks will move lower.

Let me just remind you…. NORMAL trading patterns mean that stocks can move 9.9% off the high and still be ‘NORMAL’. and that means that the S&P could trade down to 5480 before we enter ‘correction territory’. So, buckle up!

Now, yesterday – our friends at Goldman – who told us on Monday that the market was setting up for a ‘tactical bullish setup’ suddenly had a change of heart. GS Strategist Christian Mueller-Glissman wrote in a note that.

“Equity/bond yield correlations have turned negative again, and while equites have been relatively resilient during the bond selloff, we think near-term correction risk is somewhat elevated in case of negative growth news”. Wait! Do you guys even talk to each other?

European markets are a bit higher…. Germany is the only loser.

The S&P ended the day at 5919 – up 10 pts. We remain below the trendline at 5944. FED speeches today and Friday’s NFP report will be the drivers tomorrow.

Remember – stay focused, manage your risk, stick to the plan. History demonstrates that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility.

Grilled rib eye w/arugula and grana padano

There are only a couple of ingredients…. a nice Rib-Eye, s&p, olive oil, fresh arugula, sliced red onion and shaved Grana Padano. This dish is about simplicity….

Just FYI – Grana Padano – is one of the most popular cheeses in Italy. It has a distinctively grainy texture and comes from the Pianura Padana region (Po Valley, Northern Italy). It is a semi-fat hard cheese which is cooked and ripened slowly – minimum time to ripen is 9 months for Grana Padano and up to 20 + months for Grana Padano Riserva – which is more grainy, crumbly and fully flavored.

Season the Rib-eye with s&p and massage with a touch of olive oil…allow to rest at room temp for 15 or 20 mins.

Heat your grill – Place the Rib-eye on the grill and sear for 4 mins and then flip over and cook for another 3 to 5 mins – depending on thickness – -

Next – allow it to rest for 3 mins and then carefully slice it diagonally to make it look pretty.

When serving - Place on a warmed plates on a bed of fresh arugula & chopped red onion – that has been seasoned with s&p, dried oregano, olive oil and a squirt of fresh lemon juice – To finish – dress this with razor thin slices of the Grana Padano. Serve immediately with a house Chianti.